Driver Based Planning &

Rolling Forecast
A Place to Start & Beyond
Alex Cohen
Impetus Consulting Group

DRIVER BASED PLANNING &

ROLLING FORECAST
A Place to Start and Beyond

Alex Cohen
Founding Partner
Impetus Consulting Group
@alex_cohen13

11/20/2015

A L E X C O H E N : F O U N D I N G PA R T N E R
Background:

Industries Experience:

Over seventeen years of consulting experience in the area of

strategic cost management, performance management and
business intelligence

11/20/2015

Data Management

Distribution

Financial Services

High Technology
Specializes in Driver Based Modeling with extensive implementation
Media
expertise in:

Medical Technology
 Activity-Based Cost/Management (ABC/M)

Insurance
 Shared Service Chargeback, Cost-to-Serve

Pharmaceutical
 Profitability Analytics

Retail
 Driver Based Planning

Social & Online Media
 Performance Measurement
Technical Skills:
Proven project leader of complex integrated solutions

Hyperion Planning (Certified)
& Essbase (Certified)
Combines technical and functional expertise to design and deliver

Hyperion Profitability & Cost
the right solution for clients
Management (HPCM)

SAP Profitability and Cost
Regarded as a one of the premier subject matter experts for
Management (PCM) & Metify
Hyperion Profitability & Cost Management (HPCM)

CRG FlexABM

Anaplan Solution Architect
Publishes a blog on advanced planning, profitability and costing
(Certified)
principles: alextheallocator.blogspot.com
3

IMPETUS CONSULTING GROUP: WHO WE ARE

Your Performance is our Focus
We combine leading Enterprise Performance Management tools and
proven methodologies to deliver sustainable value to our clients
The Impetus team has a proven track record of implementing complex
integrated solutions for Planning, Costing and Profitability
Impetus consultants combine technical and functional expertise to
design and deliver the right solution for each of our clients
Impetus partners with leading EPM software providers ensure the right
fit for each clients

11/20/2015

OBJECTIVES
To define what drivers are and how they can be leverage across the
organization
To take practical view of Driver Based Planning and Rolling Forecast
and get down to actionable steps to apply these principles
To debunk the believe that Driver Based Planning and Rolling
Forecast are too complicated to implement at your organization
- Provide a few examples of practical models that other companies have
leveraged to get started

11/20/2015

HOW DO YOU MAKE DECISIONS ABOUT THE FUTURE?

Start with primary

drivers of your
business, then fine
tune the details

11/20/2015
Image from: moz.com

WHAT IS A DRIVER?
Enables us to aligns dollars to business processes based on cause
and effect relationships

EFFECT

CAUSE
11/20/2015
image from: blog.caspio.com.

DRIVER BASED MODELING

A driver based framework aligns dollars to business processes based
on cause and effect relationships

Cause

Effect

How

What

Drivers

Results

Inputs & Processes

Indicators of
Business Success

Focused on what an organization does/produces, rather than what it spends

Multi-causal driver relationships may generate outcomes (i.e. portfolio of drivers)
Some gut instinct hypotheses turn out to be true; others are proven false
11/20/2015

DRIVER BASED MODELING

Most business can identify a handful of key metrics (drivers) which will
drive Revenue and Cost:
- The number of new accounts opened by a bank
- The number of widgets ordered and then created by an manufacturer
- The number of units handled by a distribution company will drive capacity
requirements
- Headcount

Some key metrics have a direct effect on product cost while others are
indirectly associated (IT, HR, Finance metrics)
Costs that do have a direct correlation to the end product or services
can be analyzed and planning as a unitized measure (also known as a
rate) of cost to the key driver:
- End result: Rate * Volume = planned revenue or expense

11/20/2015

10

EXAMPLES OF KEY DRIVER

External Focused Drivers:
Financial Services
-- # of New Accounts
-- # of Transactions
-- $s per late payment

EFFECT

Distribution

# of PCs/Tablets -# of Servers -# of Help Desk Calls -% of Time Spent --

Retail

Finance

-- Revenue/Expense by Sq. FT.

-- Margin % by Category

# of A/P Invoices -% of Early Term Invoices --

Professional Services

11/20/2015
image from: blog.caspio.com.

# of FTEs -% of Employees w/Benefits -# of Contractors --

Technology

-- # of Units Moved
-- # of FTL / PTL
-- # of Miles Driven
-- % of Loss/Damaged Goods

-- # of Hours Billed
-- Prospect Conversion Ratio

Internal Focused Drivers:

Personnel

Occupancy
Square Footage --

CAUSE
11

# of Moves --

WHERE / HOW DO WE USE DRIVERS?

DRIVERS ARE THE INTEGRATION POINT BETWEEN INITIATIVES
Budgeting
& Planning
Risk
Analysis

Strategic
Decisions

Business
Drivers

Benchmarking

Profitability
& Pricing

Process
Improvement

Cost
Analysis

11/20/2015

12

WHAT IS DRIVER BASED PLANNING?

Focuses on the work that drives the economics of the business
-

Customer demand for existing and new products / services

Production, Logistics and Procurement capacity
Investments / upgrades in infrastructure / Supply Chain
New product / service development and rollout
Disruptions events in the delivery of product / services
Waste, Damage, Shrink

A Driver Based approach changes the nature of the conversation

between Finance and the broader organization
- Shifts to forecasting key metrics rather than the dollars
Bottom line: The conversation is about the inputs, not the outputs
Driver Volumes & Rates are inputs
Dollars are the output

Forward thinking, through Driver Based Planning, will enable you to

manage your business more efficiently and ultimately give you a
strategic advantage
11/20/2015

13

WHAT IS DRIVER BASED PLANNING?

11/20/2015

14

WHAT IS DRIVER BASED PLANNING?

Rolling Ave
$ / Unit
# of Units Shipped
# of Miles Driven
Storage Revenue
Shipping Revenue
Total Revenue
Warehouse Labor
Occupancy
Transportation
Other COGS
Total COGS
Gross Income
Gross Margin

$
$
$
$
$
$

2.13 $
0.82
$
2.03
0.67
0.50
0.13
$
$

Year 1
Q1
267
1,287
569
1,055
1,624
542
179
644
35
1,399
225
14%

Q2
323
1,895
$
$

$
$

688
1,554
2,242
656
216
948
42
1,862
380
17%

Year 2
Q3
378
2,057

$
$

$
$

805
1,687
2,492
767
253
1,028
49
2,098
394
16%

Q4
437
2,230
$
$

$
$

930
1,828
2,758
886
293
1,115
57
2,351
408
15%

Input

Cost Center View

Headcount
Salaries
Bonuses
Benefits & Taxes
Occupancy
Stationary
Training
Other Expenses
Total Expenses
Inflationary Factor

11/20/2015

Rolling Ave
$ / Unit

Q1
499
2,414
$
$

$
$

1,064
1,980
3,043
1,034
341
1,231
66
2,673
371
12%

Q2
566
2,611
$
$

$
$

1,206
2,141
3,347
1,174
387
1,333
75
2,970
377
11%

Q2
5

$
$

$
$

1,358
2,314
3,672
1,322
436
1,441
85
3,284
388
11%

Q4
714
3,046
$
$

$
$

1,521
2,498
4,019
1,481
489
1,556
95
3,620
399
10%

Q1
586
2,631
$
$

$
$

1,248
2,157
3,405
1,233
407
1,364
79
3,082
323
9%

Q2
657
2,841
$
$

$
$

1,400
2,330
3,730
1,383
456
1,473
89
3,401
329
9%

Q4
6

Q1
7

Q2
7

Q3
734
3,066
$
$

$
$

1,562
2,514
4,076
1,544
510
1,589
99
3,741
335
8%

Q4
815
3,306
$
$

$
$

1,736
2,711
4,447
1,715
566
1,714
110
4,105
342
8%

Locked

Year 2
Q3

Q3
638
2,822

Calculated

Year 1
Q1

Year X

Year X
Q3

Q4
8

Q1
10

Q2
10

Q3
12

Q4
13

15

$ 6,323.00 $ 31,615 $ 31,615 $ 37,938 $ 44,261 $ 45,146 $ 51,661 $ 51,661 $ 64,577 $ 65,551 $ 78,661 $ 85,216 $ 98,326
$ 1,432.00
7,160
7,160
8,592
10,024
10,224
11,700
11,700
14,625
14,846
17,815
19,299
22,268
$
54.00
270
270
324
378
386
441
441
552
560
672
728
840
$
34.00
170
170
204
238
243
278
278
347
352
423
458
529
$
13.00
65
65
78
91
93
106
106
133
135
162
175
202
$ 300.00
1,500
1,500
1,800
2,100
2,142
2,451
2,451
3,064
3,110
3,732
4,043
4,665
$
13.00
65
65
78
91
93
106
106
133
135
162
175
202
$ 40,845 $ 40,845 $ 49,014 $ 57,183 $ 58,327 $ 66,744 $ 66,744 $ 83,430 $ 84,688 $ 101,626 $ 110,094 $ 127,032
0.00%

0.00%

2.00%

15

2.13%

2.13%

2.13%

3.67%

3.67%

3.67%

3.67%

YOUR PLANNING PROCESS:

SOMETHING TO THINK ABOUT

There is nothing quite so useless

as doing with great efficiency
something that should not be done
at all.
-- Peter Drucker

11/20/2015

16

WHAT IS A ROLLING FORECAST?

The process of continuous planning without the boundaries of
accounting periods
Year 1
Year 2
Year 3
Year X
Year Y
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Snap Shot

Plan
Actuals

Annual Plan

Enables organizations to react more quickly to changing trends

through greater foresight
The continuous planning process immediately reflects known changes
that will affect the future performance of the organization, such as:
- Sales, Capital Requirements, Capacity, Economic Conditions, Other
External Forces

11/20/2015

17

DRIVER BASED ROLLING FORECASTING:

CONSIDERATIONS
There is no one size fits all
- Find the starting place and level of detail that is right for your organization.

Focus on the areas that have the biggest impact on the business.
- i.e. what matters most

How accurate does a forecast really need to be?

- More important to foresee big events happening then to get every detail right

11/20/2015

18

DRIVER BASED ROLLING FORECASTING:

THE PRACTICAL SIDE
Develop your plans (Budget, Forecast) at the same level of detail
- With a Driver Based approach, this is far easier than it seems.

Operating in one Scenario all of the time

- From here, everything becomes a point in time snapshot, taken periodically:
Remainder of the year + 1 year = Forecast
Next Year = Budget
Year 2-5 = Strategic Plan

- What-if can still be supporting through this structure and will be far less
confusing

11/20/2015

19

DRIVER BASED ROLLING FORECASTING:

THE PRACTICAL SIDE
Unitization is your friend. Use it!
- Where there are drivers there are rates
- End result: Rate * Volume = planned revenue or expense

Use a tool other than Excel (or bar napkins) to distribute, consolidate,
allocate and aggregate information from across the organization
- Avoid fighting through Excel Hell processing data, and focus on analyzing
information
- CAUTION: Changing your tool will only get you so far
The process and methodology should be refined as well

11/20/2015

20

STRAIGHTFORWARD BUT EFFECTIVE

Leading Social Media Firm
Phase 1 in developing their EPM platform
- Started with Planning & Management Reporting

First steps in Driver Based Planning:

- Leveraged headcount (FTEs & Contractors) to drive
personnel costs

Twenty-four month Rolling Forecast was enabled by

copying last planned period forward automatically
- Adjustments could them be made to both drivers and dollars

11/20/2015

21

Budgeting&
Planning
Risk
Analysis

Strategic
Decisions

Business
Drivers

Profitability&
Pricing

Benchmarking

Cost
Analysis

Process
Improvement

UNITIZE AND PLAN A FEW KEY DRIVERS

Budgeting&
Planning
Risk
Analysis

National Distribution Company

Planned a few key drivers

Strategic
Decisions

Business
Drivers

- Sales in Revenue $s
- Converted to number of cases moved
- All expenses other than labor was tied to a per/case rate

Profitability&
Pricing

Benchmarking

Cost
Analysis

Steps
- Establish a baseline cost per unit standards which can then be tracked and
managed over time
- Input the key driver volumes
- Load the most recent payroll file
- Calculate first pass plan
- Review / Adjust / Repeat as needed

11/20/2015

22

Process
Improvement

UNITIZE AND PLAN A FEW KEY DRIVERS

National Distribution Company
Done right, the planning process should move to
managing driver volumes and rates instead of dollars.
- Creating dialog around how do we reduce our cost per
case or cost per mile is much more powerful in the long
run than how do cut expenses by $10M, $20M, or $100M

11/20/2015

23

Budgeting&
Planning
Risk
Analysis

Strategic
Decisions

Business
Drivers

Profitability&
Pricing

Benchmarking

Cost
Analysis

Process
Improvement

PRIME DRIVER APPROACH

Super Regional Bank
Implementing driver based planning along with
detailed profitability
- Allow the business to plan drivers at non-leaf level
business dimensions, then push them down

Process Considerations
- Identified a set (~50) key drivers referred to as PRIME to
plan
- Allow the business to plan drivers at
non-leaf level business dimensions, then push them down
- Extrapolated the remain (~1000) drivers based on
historical correlations

11/20/2015

24

Budgeting&
Planning
Risk
Analysis

Strategic
Decisions

Business
Drivers

Profitability&
Pricing

Benchmarking

Cost
Analysis

Process
Improvement

Budgeting&
Planning

PRIME DRIVER APPROACH

Risk
Analysis

Strategic
Decisions

Business
Drivers

Profitability&
Pricing

Super Regional Bank

Benchmarking

Process
Improvement

Cost
Analysis

Fcst

Fcst

FY14

Fcst
(based on Actuals)
FY15

FY15

FY15

YearTotal

Jan

Jan

Jan

Final

PRIME Driver
Correlation

TopDown

Final

125,000

Actual

Driver Type

Cost Center

Prime Driver

LV Banch #53
LV Banch #53
LV Banch #53
LV Banch #53
LV Banch #53
LV Banch #53
LV Banch #53
LV Banch #53
LV Banch #53

Detailed Driver
Detailed Driver
Detailed Driver
Detailed Driver
Detailed Driver
Detailed Driver
Detailed Driver
Detailed Driver

11/20/2015

Product

Personal Checking Account

Personal Checking Account
Personal Checking Account
Personal Checking Account
Personal Checking Account
Personal Checking Account
Personal Checking Account
Personal Checking Account
Personal Checking Account

Driver Account

New Account
ATM Transaction
Electronic Funds Transfers
Check Deposits
Electronic Deposits
Debit Card Transactions
Online Account Views
Overdrafts
Closed Accounts

25

1,000,000
4,000,000
5,000,000
2,500,000
650,000
3,300,000
850,000
80,000
120,000

4.0000
5.0000
2.5000
0.6500
3.3000
0.8500
0.0800
0.1200

125,000
500,000
625,000
312,500
81,250
412,500
106,250
10,000
15,000

Historical Data

Planning Point

Calculated Drivers

Correlation
Check

4.0000
5.0000
2.5000
0.6500
3.3000
0.8500
0.0800
0.1200

RECAP
Driver Based Modeling is a framework aligns dollars to business
processes based on cause and effect relationships
- Every organization can identify a group of key metrics to server as the
starting point for Driver Based Planning
- Organizations can use drivers for many different initiatives including:
Planning, Costing, Profitability, Benchmarking

Rolling Forecast is the process of continuous planning without the

boundaries of accounting periods
- Enables organizations to react more quickly to changing trends

Driver Based Planning and Rolling Forecast can be leveraged

together in a practical way that is right for your organization

11/20/2015

26

DRIVER BASED PLANNING &

ROLLING FORECAST
A Place to Start and Beyond

What Questions Do
You Have?
11/20/2015

27

DRIVER BASED PLANNING &

ROLLING FORECAST
A Place to Start and Beyond

Alex Cohen
Founding Partner
Impetus Consulting Group
acohen@impetusconsultinggroup.com
: @alex_cohen13
Blog: alextheallocator.blogspot.com
11/20/2015

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